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Industry News

Ukraine Kicks Off Bad Debt Market With $1.35 Billion Jumbo Sale

August 7, 2019

Ukraine is selling $1.35 billion worth of non-performing loans in a bid to create a new marketplace for the country’s bad debt pile.

By Antonio Vanuzzo and Daryna Krasnolutska

This is the first major batch of as much as $15 billion of bad loans that Ukraine’s deposit protection fund DGF wants to put up for sale over the next year or so, according to Bliss A. Morris, founder and chief executive officer of First Financial Network (FFN), a U.S. consultancy advising on the deal.

“The sale sets the stage for an entirely new market that is poised to develop very rapidly,” she said in an interview. “Aside from the portfolios currently in the market, we are preparing another $1.2 billion to bring to the market in the next 60 days”.

After years of economic woes following Russia’s annexation of Crimea in 2014, the Eastern European country is trying to clean up its financial system and attract foreign investors. Ukraine nationalized the country’s largest lender Privatbank and shut down more than other 100 banks since the start of the
conflict with Russia-backed separatists, as owners either failed to recapitalize them or used them for money laundering.

The $1.35 billion soured loans are split into three portfolios mainly backed by real estate collateral, according to FFN. The first one, sold by Imexbank, has a $540 million face value and is secured by the Chornomorets Stadium in Odessa. The second is a $398 million package originated by 21 banks, while
the third a $413 million portfolio from 12 lenders.

“This transaction will hopefully open the Ukrainian market to foreign investors,” said Oksana Kozachok, partner at Avistar Group, a Kiev-based distressed debt fund that’s looking to invest in the $1.35 billion sale. “International players need size, but until now the portfolios for sale were worth just $1 million to $2 million.”

Difficulty with retrieving the loans and corruption in some courts also stopped potential buyers, she said.

The country’s non-performing loans-to-total loans ratio stood at 51.7% as of April, according to Ukraine’s central bank. That compares with a European average of 3.1% in March, data from the European Banking Authority showed.